1. Patent Damages Patent Disputes Forum April 18, 2018
Justin A. Hendrix, Partner, Finnegan
Doug Lumish, Partner, Latham & Watkins LLP
Kim Schenk, Principal, Charles River Associates
Darin Snyder, Partner, O’Melveny & Myers LLP
Patrick Weston, Senior Litigation Counsel, Google LLC
Danielle Williams, Partner, Winston & Strawn LLP

2. Agenda Willfulness and enhanced damages Lost profits
Reasonable royalty
Disgorgement of profits

3. Willfulness and Enhanced Damages

4. Halo’s Mixed Signals
“Such a threshold requirement [Seagate’s objective recklessness threshold] excludes from discretionary punishment many of the most culpable offenders such as the ‘wanton and malicious pirate’ who intentionally infringes another’s patent—with no doubts about its validity or any notion of a defense—for no purpose other than to steal the patentee’s business.”
Halo Elecs., Inc. v. Pulse Elecs., Inc., S. Ct. 1923, 1932 (2016)

5. Enhanced Damages Post-Halo

6. Enhanced Damages Post-Halo
Roughly 50/50 odds
76 decisions on enhanced damages
35 denying enhanced damages (46%)
23 granted/18 partial or other
Key factor?
“Garden variety” willfulness?
Knew of patent by getting sued; reasonable defenses
e.g., Presidio v. American Tech. Ceramics
Or something extra?
Copying; disregard; bullying; litigation misconduct
e.g., SRI v. Cisco

7. Practice Pointers To Avoid Willfulness and Enhancement
Don’t copy
Be reasonable – don’t tick off the judge
Don’t bully
Win stuff along the way
Do the work – show you care
Redesign
Self-enjoin
Don’t try (and fail) to buy the patent
Get a lawyer
Opinion of counsel? 7

8. Lost Profits

9. Apportionment in Lost Profits Cases: Mentor Graphics v. EVE-USA
March 2017 – Fed. Cir. affirms lost profit award
Panduit factors
(1) demand for the patented product
(2) absence of acceptable non-infringing alternatives
(3) manufacturing and marketing capability to exploit the demand
(4) the amount of profit patentee would have made

10. Apportionment in Lost Profits Cases: Mentor Graphics v. EVE-USA
March 2017 – Fed. Cir. affirms lost profit award
“In this case, apportionment was properly incorporated into the lost profits analysis and in particular through the Panduit factors. Panduit’s requirement that patentees prove demand for the product as a whole and the absence of non-infringing alternatives ties lost profit damages to specific claim limitations and ensures that damages are commensurate with the value of the patented features.”

11. Apportionment in Lost Profits Cases: Mentor Graphics v. EVE-USA
September 2017 – Fed. Cir. denies petition for rehearing en banc
Judge Stoll (joined by Newman, Moore, O’Malley, Reyna, and Wallach): “the panel made clear that apportionment is typically necessary in both reasonable royalty and lost profits analysis,” but here “the damages award properly accounted for apportionment.”

12. Apportionment in Lost Profits Cases: Mentor Graphics v. EVE-USA
September 2017 – Fed. Cir. denies petition for rehearing en banc
Judge Dyk (and Hughes) dissenting: “Consumer demand for the patented feature and but-for causation may exist (and satisfy the Panduit factors), but this does not mean that other features do not contribute to consumer demand.”

13. Lost Profits & Extraterritoriality: WesternGeco LLC v
Lost Profits & Extraterritoriality: WesternGeco LLC v. ION Geophysical Corp.
S.D. Tex. jury awarded WesternGeco $93.4 million in lost profits damages and $12.5 million in reasonable royalties
Fed. Cir. (Dyk and Wallace) vacated lost profits award because any lost profits would have been earned “on the high seas”
Judge Wallach (dissenting): “The question here, however, is not whether ‘the export of a finished product can [ ] create liability for extraterritorial use of that product,’ but instead, what is the proper measure of damages given a finding of liability.”

14. Lost Profits & Extraterritoriality: WesternGeco LLC v
Lost Profits & Extraterritoriality: WesternGeco LLC v. ION Geophysical Corp.
Themes from SCOTUS argument:
The danger of “chaos or confusion”
The role of full recovery/proximate cause
Was there a car crash?

15. Lost Profits & Extraterritoriality: WesternGeco LLC v
Lost Profits & Extraterritoriality: WesternGeco LLC v. ION Geophysical Corp.
Is this the fatal admission:
JUSTICE KENNEDY: your whole position is that this Petitioner is not entitled to full compensation for his injury, yes or no?
MR. SHANMUGAM: Yes, as a consequence of the application of the presumption against extraterritoriality.

16. Lost Profits As a Reasonable Royalty: Asetek Danmark A/S v. CMI USA Inc. Fed. Cir. 2017
Affirmed jury verdict awarding 14.5% royalty rate that relied in part on Plaintiff’s per-unit profit margin.
“As we have recognized, a patent owner participating in a hypothetical negotiation would consider the profits on sales it might lose as a result of granting a license.”
“We have explained that a patent owner would be ‘unlikely’ to be ‘interested in’ accepting a royalty rate lower than its profit margin on the patented products.”

17. Lost Profits and Price Erosion As a Reasonable Royalty: Power Integrations v. Fairchild – N.D. Cal.
$140M damages award based on the EMVR and a reasonable royalty.
Reasonable royalty calculated by summing the amounts from three buckets:
(1) The lost profits bucket;
(2) The price erosion bucket; and
(3) The reasonable royalty bucket.
Argued before Fed. Cir. in April 2018; awaiting decision.

18. Reasonable Royalty

19. Reasonable Royalty – Federal Circuit
Exmark Mfg. Co. v. Briggs & Stratton – Damages Award Vacated Because Royalty Rate Was Not Adequately Tied to the Facts of the Case
Use of all lawn mower sales as the royalty base was proper
“Apportionment can be addressed in a variety of ways, including by careful selection of the royalty base to reflect the value added by the patented feature [or] by adjustment of the royalty rate so as to discount the value of the product’s non-patented features; or by a combination thereof.”
5% royalty rate was not adequately tied to the facts of the case.
No explanation of the extent to which the advantages of the patented feature factored into the value of the lawn mower and the 5% royalty rate, and the degree to which profits attributable to the non-patented features impacted market value, profitability or the 5% royalty rate.

20. Reasonable Royalty – Federal Circuit
Finjan, Inc. v. Blue Coat Sys., Inc. – Damages Award Vacated Due to Improper Apportionment
“Because DRTR is itself a multi-component software engine that includes non-infringing features, the percentage of web traffic handled by DRTR is not a proxy for the incremental value of the patented technology to WebPulse as a whole. Further apportionment was required to reflect the value of the patented technology compared to the value of the unpatented elements.”
The Federal Circuit also took issue with the $8 per-user royalty rate because it was not tied to the facts. While the patentee cited to evidence of its prior license rate of 8-16% or $8 per user as the starting point for the hypothetical negotiation, no evidence showed the facts of the prior license were tied to the current case.

21. Reasonable Royalty – E.D. Tex.
Ericsson v. TCL – New Trial on Damages Granted due to Improper Application of Survey Directly to Profits
“Mr. Mills directly translated the roughly 28% of survey respondents who allegedly would not have bought a TCL phone without the infringing feature to TCL’s profit in an effort to determine the potential ‘at-risk’ profit.”
“Mr. Mills did not consider the numerous patented features on the accused phones, many of which a consumer would consider essential Mr. Mills did not account for how his theory would result in the erosion of all of TCL’s profit.
“[T]here are many features on a phone that would likely yield survey results similar to those obtained for the patent, e.g., ability to make a call, text messaging, Wi-Fi connection. To conclude that any one of these features—simply because it is considered essential to a consumer—could account for as much as a quarter of TCL’s total profit is unreliable and does not consider the facts of the case, particularly the nature of smartphones and the number of patents that cover smartphone features.”

22. Disgorgement of Profits

23. Design Patent Damages – N.D. Cal.
Apple v. Samsung – Background
2012 and 2013 trials - design patent damages based on the premise that Apple was entitled to all profits from sale of infringing Samsung phones
Supreme Court later created 2-step test:
Identify the relevant article of manufacture
Calculate all profits from the article of manufacture
On remand, District Court adopted U.S. Solicitor General 4-part test to identify the relevant article of manufacture:
Scope of design in patent
Relative prominence of design in product
Whether design is conceptually distinct from product
Physical relationship between design and product

24. Design Patent Damages – N.D. Cal.
Apple v. Samsung – Judge Koh’s April 2018 Daubert Order
Article of manufacture
Designer of Ordinary Skill in the Art (DOSA) and Ordinary Observer are not correct standards
Solicitor General’s brief is not the law
Industrial design expertise may be helpful to jury but is not a requirement in all cases
Examples of relevant considerations
Damages
Consumer surveys of not sufficient to identify profits from article of manufacture
“Portfolio IP” royalty opinion not inherently flawed